Ghana Central Bank Sees Scope for Further Interest-Rate Cuts

Ghana’s central bank has room for another interest-rate cut as early as next month, according to a member of the Monetary Policy Committee.

Following an unexpected reduction in the key rate in January, further loosening in March “could be a possibility” if inflation trends downward, said Philip Abradu-Otoo, who is also the head of research at the Bank of Ghana.

The central bank is “fairly confident that inflation will behave,” Abradu-Otoo said Friday in an interview in the capital, Accra. “Our forecast did not show any shift and the shocks that are coming are not materially shifting” the inflation outlook, he said.

Last month’s 100 basis-point cut took the benchmark rate to an almost six-year low of 16 percent and bucked a worldwide trend toward tightening. While inflation has been inside the central bank’s target band for nine months, it still hovers close to the 10 percent upper end of the range.

Ghana's inflation rate is close to the upper end of the target range
Ghana had scope for a rate cut in the November, but the MPC was concerned about trade tensions, global inflation pressures and financial-market volatility, Abradu-Otoo said. These risks, and concerns about the U.S. Federal Reserve’s rate increases, had subsided by January, he said.

IMF Program
Ghana is nearing the end of an almost $1-billion program with the International Monetary Fund. The zero-financing agreement with the lender, under which the central bank stopped funding the budget deficit, helped to bring inflation down to 9.4 percent in December from a record 19.2 percent in 2016, Abradu-Otoo said. The accord has been extended until 2020, he said.

The statistics office will publish January inflation data on Wednesday and is expected to use a new base year for the index.

Read more about the end of Ghana’s IMF program

West Africa’s second-largest economy faces a test to maintain economic gains and fiscal discipline after the bailout program ends in April. The Financial Stability Advisory Council that the government has established will improve policy coordination, according to Stephen Opata, an MPC member and the central bank’s head of financial markets.

“We are not going to slip after the IMF program, we are going to be fiscally disciplined,” Opata said in the same interview.